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Leases

Rental Bonds vary subject to individual Landlords discretion. The degree of rental bond required is assessed case by case, generally subject to the bona fides’ of the Purchaser.

The most common Rental Bond requested is 3 times the monthly Rent + Outgoings + GST. We are aware of bonds occasionally less or potentially more than this. Bank Guarantees are the most common form of Security provided. Bank Guarantees are an instrument generally secured by some form of equity.

Put yourself in the Landlords shoes for a moment. They want to be convinced that you have the experiences and/or potential to be successful, which means they are secure in the thought that their rent will be paid each month without compromise. The stronger your background and greater your degree of equity being brought to the purchase, may improve your Bona Fides’ providing the Landlord such confidence.

Landlord Questions. To our understanding, Under the Act, Landlords are not permitted to talk to any potential buyer about an existing lease without the written consent of the lessee. A Sale of Business Contract provides that permission. So unfortunately, the first time you can be specifically aware of this requirement is after you have submitted an application for Assignment of the Lease, after you have signed an accepted contract. The landlord may also not be aware the business is for sale, and any contact indiscretion may compromise.

Lease Terms. Businesses are sold “as is where is” and so unless specifically negotiated at the time of the offer, it is assumed you are taking an assignment of the existing lease only, as businesses values are influenced by the lease term available.

Landlords of businesses with leases that do not standardly include “options” very rarely entertain discussion of an option or extension to the existing lease. This is the case with most Shopping Centres, fixed term, no option. You negotiate the next term generally within 6-12 months of lease expiry. It is not as though they do not want their valued Newsagent, it’s just the way they have operated for decades.

Landlords of businesses with leases that have existing “options” to the lease term, may consider further options if absolutely necessary for finance requirements. eg, a 3+3 (3 year lease with 3 year option) may be granted a further 3 year option.

If your finance opportunity is subject to anything different to the existing lease, you must raise this at the time of making an offer.

Cost of Lease / Transfer. Costs for Assignment of Lease are paid by the Seller under normal circumstances.

Costs for a New Lease or Lease extensions are paid by the Buyer as the buyer gets a benefit that presently does not exist. Costs will likely include your solicitor to assist review and advice, a landlord admin fee & the landlords solicitor for drafting the new or amended documents. If there is a moderate term left on the existing lease, and you require a New lease, there may also be the cost to you for Surrendering the existing lease as only one lease can exist at a time.

NOTE: If seeking a New Lease under contract, that does not generally permit expecting a rent reduction, and a rent reduction would not be an acceptable contract condition. Firstly, put yourself in the Landlords shoes again. They have an existing Lease at a certain rate for however many more months/years left. Why would the Landlord accept a lesser rent to an unknown tenant, when he can get the existing rate off the current owner for the duration ? Result is simple, Purchaser wanting to pay less does not get approved. Also, if the rent were cheaper, the business would be more profitable, and accordingly, more valuable; and you are only paying for the business “as is”. Purchasers have to understand a New Lease is generally only an ability to secure a longer lease term, at continuing rates.

Contract Deposit. We suggest a minimum expected deposit level for each contract, normally 10%. Numerous parties will look at that deposit amount, and make judgments accordingly.

As example, a solid deposit sends a message to the seller that you are serious, but we also see landlords refer to it at times when assessing a buyers bona fides’ and commitment, and the degree of Rental Bond they may request. We have seen, in cases of small or part deposits, landlords ask for larger rental bonds where the existing owner may only have a 3 month rental bond. A healthy deposit is strongly recommended as a good start to sending the right message.